According to Keynesian analysis, why might lowering interest rates not work to stimulate enough investment to absorb all of planned savings in the economy?
A) The only possible interest rate for equilibrium between savings and investment to occur would be negative.
B) Banks will not offer to pay lenders to borrow money.
C) During a recession, the outlook is for negative profits on new investment because of a lack of sufficient market demand for goods.
D) All of the above.

Question

Quizplus · Accepted Answer

Lowering interest rates may not be enough to stimulate investment to absorb all of planned savings in the economy for multiple reasons. One reason is that the equilibrium interest rate may need to be negative, which is not feasible. Additionally, banks may not be willing to offer negative interest rates to borrowers. Furthermore, during a recession, there may be a low demand for goods and negative profits for new investment, making it unattractive for investors.

According to Keynesian Analysis, Why Might Lowering Interest Rates Not